Disclaimer

This blog/web site is made available by the host/publisher for educational purposes only as well as to give you general information and a general understanding of the law. It is not intended to provide specific legal advice to your individual circumstances or legal questions. You acknowledge that neither your reading of, nor posting on, this blog site establishes an attorney-client relationship between you and the blog/web site host or the law firm, or any of the attorneys with whom, the host is affiliated. This blog/web site should not be used as a substitute for seeking competent legal advice from a licensed professional attorney in your state. Readers of this information should not act upon any information contained on this website without seeking professional counsel. The transmission of confidential information via Internet email is highly discouraged. Per a June 11, 2007 opinion of Connecticut's Statewide Grievance Committee, legal blogs/websites, such as this one, may be deemed an "advertisement" under applicable rules and regulations of Connecticut, and/or the rules and regulations of other jurisdictions.

Life Insurance

08/29/2012

A federal court in Illinois let stand a murder suspects claim against an insurance company for life insurance proceeds, but also ruled that the insurer's interpleader lawsuit was proper.

In Metropolitan Life Ins. Co. v. Johnson, No. 11 C 8210, 2012 WL 2192283 (N.D. Ill. June 13, 2012), the dispute focused on the payment of death benefits from a life insurance policy issued by MetLife to cover the life of Geraldine Johnson.

Geraldine died of stab wounds in 2003, "and the manner of death was determined to be a homicide," said the court.

Her surviving spouse, Danny Johnson Sr., and her children, Danny and Deanna, submitted claims to the life insurance proceeds. MetLife paid the children, and then did not pay Danny, saying that the police department investigating Geraldine's death has repeatedly said that Danny Johnson Sr. is suspect. MetLife further said that "an insurance company cannot make payments to a primary beneficiary where it has been specifically notified by the criminal authorities that an investigation of the beneficiary's participation in a decedent's death has not been closed."

In 2011, MetLife filed an interpleader, saying payment to Danny Johnson Sr. would risk exposure to double liability. Johnson filed a counterclaim, alleging that he has not been charged with any crime, and that MetLife wrongfully withheld and unreasonably delayed payment to him.

The court first determined that the interpleader action by MetLife was proper:

In this litigation, Johnson's status as a suspect in Decedent's homicide creates a disputed issue as to whom the Policy's benefits should be paid. Federal common law bars recovery of life insurance to a person implicated in the homicide of the insured. Met. Life Ins. Co. v. White, 972 F.2d 122, 124 (5th Cir. 1992) (citing New York Mutual Life Ins. Co. v. Armstrong, 117 U.S. 591 (1886)). Therefore, regardless of whether Danny or Deanna files an additional claim to the contested funds, Johnson cannot recover the Policy's benefits if this Court holds that his implication in Decedent's homicide is preclusive. Accordingly, because MetLife has a 'real and reasonable fear of double liability of conflicting claims,' its interpleader action is proper . . . .

Metropolitan Life Ins. Co. v. Johnson, 2012 WL 2192283, *3.

As for Johnson's counterclaim, the Court denied MetLife's motion to dismiss:

Johnson alleges that he has not been named a suspect in Decedent's death and has not been charged with any crime relating to Decedent's death. . . . Therefore, he argues that MetLife's failure to pay Johnson the benefits from the Decedent's policy is unreasonable. In response, MetLife argues that because the policy department investigating the Decedent's death repeatedly advised MetLife that Johnson remains a person of interest in the ongoing investigation, there is a bona fide dispute regarding coverage.

* * *

At this stage of litigation, the Court is limited to considering the allegations in Johnson's Counterclaim. MetLife's argument that the policy department informed MetLife that Johnson is a person of interest in Decedent's death is not properly considered at the pleading stage. There are factual issues regarding whether MetLife's decision to not pay Johnson the benefits of Decedent's policy is bona fide . . . . Accordingly, MetLife's Motion to Dismiss is denied as to Johnson's Counterclaim.

05/23/2012

In Genworth Life & Annuity Ins. Co. v. Cain, Civil Action No. 4:11-CV-00894, 2012 WL 1802613 (S.D. Tex. May 17, 2012), the court considered an interpleader action by plaintiff Genworth Life and Annuity Insurance Company, requesting a determination as to who is entitled to the proceeds of an insurance plan held by Clifford Warren Jr. The determination, said that court, was between "the express beneficiary or the surviving spouse." Another party also asserted a claim to a portion of the proceeds: DFS Interests, Inc. ("DFS"), a financing business that loans money to funeral homes to cover funeral expenses in exchange for an assignment of insurance benefits, sought to recover proceeds under an arrangement with the beneficiary, Mary Cain, who had entered into an arrangement to have memorial services for Clifford Warren Jr. (her son) by the Serenity Mortuary Funeral Home. Cain assigned a portion ($15,858) of her interest in the policy proceeds to Serenity, which in turn reassigned that amount to DFS. At the time of Clifford Warren Jr.'s death, he was married to defendant Kathleen Warren (the surviving spouse).

The issue, the court said, involved a decision as to whether the proceeds were the community property of Clifford Warren Jr. and Kathleen Warren. The conclusion, said the court, was that the proceeds were community property:

In opposition to DFS's motion [for summary judgment], Warren claims that, as the surviving spouse, she is entitled to half the policy proceeds because the insurance policy was purchased with community funds. . . . Under Texas law, if the insurance contract was community property at the time of the insured spouse's death, then the surviving spouse would be entitled to half the proceeds as her share of the community estate. Amason v. Franklin Life Ins. Co., 428 F.2d 1144, 1146–47 (5th Cir.1970). If the insurance policy was decedent's separate property at the time of his death, the surviving spouse would be entitled to reimbursement of one-half of the community funds used to pay the premiums. Pritchard v. Snow,530 S.W.2d 889, 893 (Tex.Civ.App.1975). "Generally, whether property is separate or community is determined by its character at inception, and this general rule applies to life insurance policies." Barnett v. Barnett, 67 S.W.3d 107, 111 (Tex.2001). . . .

Here, DFS does not dispute that Warren and the decedent were married at the time the insurance policy was purchased and that it was purchased with community funds. . . . Accordingly, the insurance policy and its proceeds are community property under Texas law. . . .

Instead of providing the Court with clear and convincing evidence that the insurance policy is not community property, DFS references case law that it contends shows a superior interest by the named beneficiary over the rights of the community estate. However, DFS has misinterpreted these cases. In Parson v. United States, 460 F.2d 228, 231–32 (5th Cir.1972), a spouse naming the other spouse as a beneficiary in a life insurance policy. The Parsoncourt was asked to decide whether the spouse had effectively made a gift of his community property share to his wife's separate estate for estate tax purposes, an issue not relevant here. Likewise, the other cases that DFS cites would support DFS's position if the decedent had purchased the life insurance policy prior to his marriage. McCurdy v. McCurdy,372 S.W.2d 381, 383–384 (Tex.Civ.App.1963); Gray v. Bush,430 S.W.2d 258, 267–268 (Tex.Civ.App.1968); Pritchard v. Snow,530 S.W.2d 889, 893 (Tex.Civ.App.1975); Camp v. Camp,972 S.W.2d 906, 907 (Tex.App.1998). Here, however, the insurance policy was purchased during the marriage with community funds. None of the cases DFS cites rebut the community property presumption in this circumstance.

Accordingly, the Court finds that Kathleen Warren is entitled to her community property estate interest of one-half the proceeds of the Genworth insurance policy; Mary Cain is entitled to the remaining half. DFS's motion for summary judgment to the contrary is denied.

Genworth Life & Annuity Ins. Co. v. Cain, 2012 WL 1802613, *1-2.

The court also concluded that, by virtue of its assignment agreement, DFS was entitled to a portion of the insurance proceeds due to Mary Cain.

02/06/2012

In March 2006, the Securities and Exchange Commission (“SEC”) issued an administrative order pursuant to which Bear Stearns & Co., Inc. and Bear Stearns Securities Corp. (collectively, “Bear Stearns”), “without admitting or denying the findings [made pursuant to its offer of settlement],” agreed to pay “disgorgement in the total amount of $160,000,000” and “civil money penalties in the amount of $90,000,000” in settlement of charges that the companies willfully facilitated illegal mutual fund trading practices. During the same month, the New York Stock Exchange (“NYSE”) issued a similar order and levied a sanction of “$160,000,000 as disgorgement” and “$90,000,000 as a penalty” against Bear Stearns, which would be deemed satisfied by payment of the sanctions imposed by the SEC.

The First Judicial Department of New York’s Supreme Court, Appellate Division rejected plaintiffs’ argument in all respects, finding that when “read as a whole, the offer of settlement, the SEC Order, the NYSE order and related decisions” demonstrated that Bear Stearns not only wrongfully generated$16.9 million in revenues for itself, but also “knowingly and affirmatively facilitated an illegal scheme which generated hundreds of millions of dollars for collaborating parties.” Applying the theory of joint and several liability, the Court concluded that “all gains flowing from the illegal activities” were properly included in the disgorgement amount. Moreover, the Court found that the SEC’s failure to itemize how it reached the agreed-upon disgorgement figure did not raise an issue as to whether the disgorgement payment was, in fact, compensatory.

Accordingly, the long-standing rule that “disgorgement of ill-gotten gains or restitutionary damages does not constitute an insurable loss” applied to bar plaintiffs’ indemnity claims.

12/09/2011

If there is an assignment of an insurance policy, and notice of such assignment to the insurer, will the insurer be bound by the assignment?

Not if the assignment fails to meet the requirements under the terms of the policy, at least under Oklahoma law, according to a federal court that recently considered the issue.

The federal court in Bankers Healthcare Group, Inc. v. Reassure America Life Ins. Co., No. CIV-10-1044-D (W.D. Okla. Sept. 30, 2011), restated black letter law under Oklahoma that "Oklahoma has long held that 'mere notice' to an insurer of the assignment of a policy 'does not create a new contract between insurer and assignee' so as to make the insurer liable on the policy, as there was no 'meeting of the minds' sufficient to create a contractual obligation of the insurer to the assignee."

Thus, said the court, with added emphasis, "[w]here, as in this case, the insurer's consent to an assignment is required, 'the assignee acquires no right as against the insurer' in the absence of that consent." The court also quoted an insurance treatise for the proposition that "Life insurance policies may, and often do, expressly provide that they are not assignable without the consent of the insurer issuing them, and in this case, the provision must be complied with ... to give the assignee any right thereunder as against the insurer."

The court said that, although the policy provides that it may be assigned by the insured, the relevant policy clause provides that the insurer "is bound by an Assignment only" under certain circumstances, and it "is not liable for any payment made . . . before We record the Assignment." The court also noted that the insurer "maintained express procedures for the acceptance and recording of an assignment, and these were communicated" to the insured and the assignee - and it "is not disputed that these procedures were not followed . . . ."

The court concluded that the "evidence, construed most favorably to [plaintiff] BHG, cannot support a contention that REALIC[, the insurer] accepted the assignment, thereby rendering it contractually liable to the assignee."

11/30/2011

The United States Court of Appeals for the Sixth Circuit recently decided Hadden v. U.S., No. 09–60722011, WL 5828931 (6th Cir., Nov. 21, 2011), a case in which the plaintiff made several compelling arguments to avoid reimbursing Medicare 100% where the plaintiff contended he only recovered 10% of his damages.

In this case, Medicare paid plaintiff’s medical bills which totaled $82,036.17, and plaintiff Hadden thereafter recovered $125,000 in a personal injury claim. Medicare subtracted a portion of the attorneys’ fees Hadden paid to his lawyer relating to the settlement and demanded approximately $62,000. Hadden escrowed $62,000, paid it to Medicare under protest, and took an appeal.

Hadden’s essential argument was that the tortfeasor from whom he recovered was only 10% responsible for his damages, and thus, the $125,000 settlement represented only 10% of Hadden’s damages. Further, Hadden argued that the settlement compensated him for only 10% of his medical expenses, or $8,000. Therefore, Hadden claimed that the remaining $117,000 “compensated him for damages other than medical expenses . . . and was therefore off-limits to Medicare.” Id. at *1.

Applying de novo review, the Sixth Circuit affirmed the district court's judgment, and held that the government was entitled to recover 100% of the recovery, and that the beneficiary's own obligation to reimburse Medicare was defined by scope of beneficiary's own claim against third-party:

Consequently, the scope of the plan's “responsibility” for the beneficiary's medical expenses—and thus of his own obligation to reimburse Medicare-is ultimately defined by the scope of his own claim against the third party. That is true even if the beneficiary later “compromise[s]” as to the amount owed on the claim, and even if the third party never admits liability. And thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other.

That is precisely what Hadden attempts to do here. In his claim against Pennyrile, he did not demand that it pay for only 10% of the medical expenses that he incurred as a result of his accident; he demanded that it pay for all of them. That choice has consequences-one of which is that Hadden must reimburse Medicare for those same expenses. (To respond briefly to the dissent: Section 1395y(b)(2)(B)(v) affords the Secretary broad discretion to waive Medicare's right of recovery to the extent she sees fit in a particular case.)

Hadden v. U.S., 2011 WL 5828931, *3 (emphasis in original). The court also rejected Hadden's reliance on “equity and good conscience”, which the court determined did not favor returning money that beneficiary had paid under protest.

08/23/2011

A federal appeals court last week affirmed summary judgment for insurer Transamerica Life Insurance Company, in a case where a claimant alleged that she should not have been allowed to let the insurance policy lapse.

In Yarnell v. Transamerica Life Ins. Co., No. 10-5367 (6th Cir. Aug. 17, 2011), plaintiff Laura Yarnell filed a complaint in Tennessee state court alleging that Transamerica breached its contract with her when it denied her claim to her husband's life insurance benefits.

After Transamerica removed the case to the United States District Court for the Eastern District of Tennessee on the basis of diversity jurisdiction, Yarnell filed an amended complaint adding SunTrust Securities, Inc. and SunTrust Annuities, Inc. (“SunTrust”) as defendants, and asserting negligence claims against both Transamerica and SunTrust.

The district court - construing the complaint as bringing negligence and breach of contract claims against both defendants - granted Transamerica's and SunTrust's motions to dismiss the negligence claim, dismissing all claims against SunTrust, and granted Transamerica's motion for summary judgment, dismissing all remaining breach of contract claims against Transamerica.

Yarnell appealed the dismissals.

The gist of Yarnell's argument was that Transamerica and SunTrust were negligent in hiring and training their employees and in failing to institute policies and procedures to prevent insurance policies from lapsing. She also alleged that Transamerica and SunTrust failed to notify the Yarnells that a grace period had begun as required by the policy, and that their refusal to pay policy benefits was “without cause.”

On the negligence claims, the Sixth Circuit Court of Appeals reviewed the governing agreements, and concluded that there were no provisions imposing a duty on the defendants to see to it that the policy did not lapse. "Absent a duty to Appellant, Transamerica and SunTrust are not liable under a negligence theory," the court said. The appeals court also affirmed the district court's decision concerning the breach of contract claims.

07/27/2011

Earlier this month, the New York Insurance Department sent 172 life insurance companies a "308 letter" requesting information concerning the insurers' procedures to identify beneficiaries following an insured's death.

The insurers are legally obligated to respond to the letter, which the Insurance Department advised is aimed at preventing an insurer from failing to pay a beneficiary who has not made a claim. Essentially, the Insurance Department is shifting the burden of notification to the insurers, asking them to more proactively identify a death so that policy values are preserved, and so that beneficiaries are notified of their right to a death benefit.

You may read the Insurance Department's bulletin and sample 308 letter here.

07/08/2011

The Florida Court of Appeals today reached the conclusion that had already been made by most Florida trial courts: that they have the authority to approve a structured settlement of a minor's personal injury claim.

One Florida trial court, however, had reached the opposite decision - and that led to today's decision in Hancock v. Share, Case No. 5D10-2069 (Fla. Ct. App. July 8, 2011).

In today's opinion, the Florida Court of Appeals, Fifth District, considered the appeal of Traci Hancock, who is the mother and guardian of Marisa Hancock, a minor.

Traci Hancock had requested that the Volusia County, Florida, Circuit Court approve a settlement of Marisa's personal injury lawsuit. A portion of the settlement proceeds were to be used to purchase an annuity to fund structured settlement payments to be paid for Marisa's benefit for the next twenty-seven years.

The trial court approved the settlement, except for the structured settlement portion, stating that Florida statutes authorized trial courts to approve settlements of minors' personal injury claims, but did not establish a court's authority "to bind the assets of the ward beyond the age of majority . . . ."

Traci Hancock appealed, maintaining that "the trial court erred, as a matter of law, in denying her request to approve the structured portion of the settlement agreement reached by the parties." The appeals court agreed with her.

"The trial court rejected the structured settlement annuity portion of the proposed settlement agreement, concluding that the court lacked the the legal authority to approve said agreement because the terms of the agreement would remain in effect even after the date Marisa turned eighteen years old. Specifically, the trial court concluded that section 744.361(6)(c) of the Florida Statutes (2009) required the court to ensure that, once Marisa turned eighteen years old, the proceeds from her lawsuit would be available to her. . . .

* * *

[T]he parties in this case submitted a proposed annuity contract which, pursuant to section 744.441(21) of the Florida Statutes, a trial court is authorized to approve, provided that the contract is appropriate for, and in the best interest of, the ward.' All the parties and the trial court agreed that the annuity contract proposed by the parties in this case was in Marisa's best interest."

Hancock v. Share, Case No. 5D10-2069.

The appeals court also rejected the trial court's reliance on Guardianship of Bernstein v. Miller, 777 So. 2d 1125 (Fla. Ct. App. 2001), because Bernstein involved a trust for a minor as well as a subsection of the Florida Statutes that authorized creation of irrevocable trusts that extend beyond the age of minority.

04/26/2011

Should litigation funding be regulated? David Golden, who is the senior director of commercial ines for the Property Casualty Insurers Assn. of America in Des Plaines, Ill., believes so, and says that the current unregulated business landscape leads to increased costs not only for those who take out those loans, but also for everyone who buys an insurance policy:

Remember what your mother said about things that sound too good to be true? Consumers who use these financial instruments could pay a steep price.

This applies not only to consumers who take out these loans, but also by every consumer who buys an insurance policy through increased claim costs.

Golden's article, headlined "Payday loans for lawsuits," appears in the latest issue of American Agent & Broker magazine, and also on the website PropertyCasualty360. The first part is here and the second part is here. (Cross-posted at Insurance Developments.)

04/21/2011

In Genworth Life and Annuity Ins. Co. v. Abernathy, No. COA10-242, 2011 WL 1467659 (N.C. Ct. App. Apr. 19, 2011), one of the questions before the North Carolina Court of Appeals concerned the whether there was sufficient evidence that an insured had changed the beneficiary of his life insurance policy.

The insured's daughter, Lisa Marie Abernathy, argued that there was. The lower court, however, ruled that there was not sufficient evidence to create a material question of fact, and therefore granted summary judgment to Genworth and to the father's ex-wife.

As the appeals court said, "Ms. Abernathy claimed that her father, in the summer of 1999, executed and submitted to Genworth a change of beneficiary form making her the sole beneficiary of his life insurance policy." This, according to Ms. Abernathy, changed the beneficiary to her from the insured's ex-wife, Joy Lynette Biddy. But the evidence, said the appellate court, was that Genworth had no record of any change of beneficiary form being received from Mr. Abernathy in 1999.

Ms. Abernathy relied, however, on the argument that the evidence showed a question of fact as to substantial compliance with the change of beneficiary procedures. The appellate court explained that substantial compliance means that "[I]f the insured has done substantially what is required of him, or what he is able to do, to effect a change of beneficiary, and all that remains to be done are ministerial acts of the association, the change will take effect, though the formal details are not completed before the death of the insured." The court also said that "some affirmative act on the part of the insured to change the beneficiary is required, as his mere unexecuted intention will not suffice to work such a change."

The appeals court rejected the idea that there was evidence that Ms. Abernathy saw her father sign a change of beneficiary form, since the record on appeal did not include such evidence. The court also said that the evidence that her father intended to change the beneficiary was insufficient to show that he did take some act to change the beneficiary:

Ms. Abernathy . . . points to her deposition testimony that her father met with his stockbroker to review paperwork one week before he passed away. She testified as to the purpose of this meeting: "Daddy wanted to make sure that I was supposed to be the sole beneficiary. And he wanted to make sure everything was in order for that for when he passed." While we agree with the trial court that this testimony is barred by the Dead Man's Statute, seeN.C.R. Evid. 601(c), it would, even if admissible, be insufficient to defeat summary judgment. At most, this testimony supports a finding that Mr. Abernathy intended for Ms. Abernathy to be the beneficiary of the policy. . . . [H]owever, . . . an insured's "'mere unexecuted intention will not suffice to work such a change.'"

Ms. Abernathy cites no authority suggesting that evidence of an intent to change a beneficiary would be sufficient to establish substantial compliance. . . . In addition, this testimony cannot establish the additional requirement that Mr. Abernathy "substantially fulfill[ed] the actions required on his part to accomplish the change" under the policy and that he "communicate[d] these efforts to an agent of the insurer."

* * *

Finally, even if Ms. Abernathy did have evidence that her father signed the change of beneficiary form, she has failed to present evidence that it was delivered to Genworth. She cites her testimony that her father sent it to Genworth, but there is no indication that she had personal knowledge of that mailing. If that testimony is based on what her father told her, then it is barred by Rule 601(c), the Dead Man's Statute. With respect to it being received by Genworth or its agent and being mishandled and not processed, Ms. Abernathy cites only to her counterclaim. As this Court has previously held, "'a defendant's unverified pleadings are insufficient to defeat a motion for summary judgment since they do not comply with the requirements of Rule 56(e).'"

The court concluded by pointing out that, in opposing a motion for summary judgment, Ms. Abernathy, at best, "presented evidence that her father intended or believed he had made her his beneficiary, although some of that evidence was inadmissible under the Dead Man's Statute" but that "such evidence, even if admissible, does not . . . meet the requirements for substantial compliance sufficient to make her the beneficiary."